Tanfield Group Plc

("Tanfield", or "the Company")

Interim Results for the six-month period to 30 June 2018

Tanfield, an investing company as defined by AIM Rules, announces its half year results for the period ending 30 June 2018. The unaudited financial information will shortly be available on the Company website at www.tanfieldgroup.com.

Background

The Company is currently defined as an investing company that has two passive investments. This status resulted from the disposal of Smith Electric Vehicles in 2010 and the disposal of Snorkel Europe Limited in October 2013.  Tanfield currently owns 49% of Snorkel International Holdings LLC ("Snorkel") and 5.76% of Smith Electric Vehicles Corp. ("Smith").

The strategy of the Company in relation to these investments is to return as much as possible of any realised value to shareholders as events occur and circumstances allow, subject to compliance with any legal requirements associated with such distributions.

Summary

·     As reported in the Snorkel Investment Update on 20 September 2018, the Board have impaired the Snorkel investment value to £19.1m ($25.3m), which represents approximately 12p per share.

·     Smith continues to be held at a nil balance sheet value following the impairment of the investment at the end of 2015. 

·     In June 2018, Snorkel indicated to the Board that it expects Xtreme will cause SKL Holdings to exercise its call option at the earliest opportunity, in October 2018.  However, this has not been confirmed by Xtreme or SKL Holdings.

·     Based on the information currently available to the Board, it is likely that the trailing 12 month EBITDA at October 2018 will result in the price of the call option being at best a modest amount, possibly nil, but this will need to be validated at the time and consequently the Board has restricted its current valuation of the Company's interest in Snorkel to the priority amount and preferred return values only.

·     As reported in the Snorkel Investment Update on 20 September 2018, Charles Brooks, the former Chief Financial Officer of Tanfield Group Plc who had significant input in to the key documents pertaining to the joint venture between Tanfield and Xtreme and whose employment transferred following the joint venture and who is now the Chief Financial Officer at both Snorkel and Xtreme, has made assertions that the preferred interest position is only applicable until 30 September 2018, after which date the value will be nil.  The Board do not agree with the assertions made by Mr Brooks and are of the belief that the intent of the agreement requires the payment of the preferred interest position prior to or in conjunction with Xtreme seeking to exercise the call option to acquire Tanfield's equity in Snorkel.

·     Whilst there is no formal dispute with Xtreme currently, the Board has inferred from its correspondence with Mr Brooks that this may occur in due course. Should Xtreme attempt to exercise its call option and dispute that the adjusted preferred interest position is payable, the Board will vigorously defend its position that the preferred interest is payable.

·     The Company's operating loss in H1 2018 reduced to £94k (H1 2017: £109k).  The retained loss for the period, after a £17.2m impairment of the Snorkel investment valuation, was £17.3m (H1 2017: £0.1m).

Overview of investments

Based on the unaudited financial information received from Snorkel, during the first six months of 2018 the business achieved further sales growth resulting in sales of $96.3m, an increase of 21% compared to H1 2017 when sales were $79.7m.  Should the trend of sales growth continue for the remainder of the year, the Board believes 2018 could see sales in excess of $200m. The reported gross profit for the period was $12.3m, an increase of $1.7m compared to H1 2017 ($10.6m).  Despite the $1.7m increase in gross profit, the operating profit, excluding depreciation, saw a $0.7m decrease to $0.8m compared to H1 2017 ($1.5m).  This was as a result of a material increase in selling, general and admin costs of $2.4m during the first 6 months of 2018, up to $11.5m in H1 2018 from $9.1m in H1 2017.  As a comparison, the value of selling, general and admin costs in H1 2016 was $8.9m which is consistent with the H1 2017 value of $9.1m.    

As referenced in the summary, whilst there is no formal dispute with Xtreme currently, should Xtreme attempt to exercise its call option and dispute that the adjusted preferred interest position is payable, the Board will vigorously defend its position that the preferred interest is payable.

In 2015 the investment in Smith was impaired to nil due to the uncertainty around its future and the level of funding it required. The situation continues to be monitored but the Board is of the opinion that it is highly unlikely that any value will materialise from the investment.

For further information:

Tanfield Group Plc

Daryn Robinson                                                                020 7220 1666

WH Ireland Limited - Nominated Advisor

James Joyce / Chris Viggor                                          020 7220 1666